26 Juli 2010

Blenheim Signed Up for $5bn Malaysian Defence Offset Deal

26 Juli 2010

Some of Blenheims first customers are likely to be defence firms such as EADS, which has sold A400M transport planes to Malaysia. (photo: AFP)

Blenheim Capital Partners has been hired by the Malaysian government to finance and develop a $5bn ($3.3bn) defence and technology centre to offset hundreds of millions of dollars owed to the country from defence deals.

The outstanding defence offset obligations to Malaysia already mount up to $200m, and with the country planning to spend between $5bn and $7bn updating planes, ships and armoured vehicles over five years from 2011, there will be many more.

Malaysia currently asks for offsets of at least 50pc of the value of a defence contract, according to Grant Rogan, chief executive of Blenheim.

Defence offsets are an agreement to invest in the buyer nation’s economy to create a certain amount of wealth, in return for the purchase of equipment. It can take the form of developing the industrial base by building part of the kit in question in-country, or increasingly by attracting investment from unrelated industries to stimulate economic growth.

Grant Rogan, the chief executive of Blenheim, says there are around $100bn of outstanding offset obligations around the world, and another $150bn could be created in the next five years alone. US and European defence companies are chasing exports as growth slows at home.

London-based Blenheim, which was set up as joint venture with Barclays Capital in 1996 before a management buyout last year, will work with a local partner to raise long-term loans to build the Malaysia Defence and Security Technology Park and find companies to set up there.

Some of the first customers are likely to be firms which have sold expensive military kit to Malaysia in the past, and those that plan to do so in the future.Those include EADS, which has sold A400M transport planes to Malaysia, Thales, AgustaWestland and the Russian fighter plane builder Sukhoi.

Malaysian officials view the technology park as a way of developing the country as a defence and security manufacturing hub for the south-east Asian region.

Blenheim has previously set up projects which dispensed of $12bn of obligations for defence companies offset projects in the Kuwait, in the form of an aircraft leasing business, and a five-star beach resort in Saudi Arabia, among others.